HI5027S Corporations
Law
Assessment
2
Assessment
Value: 20%
Due: Week
10 in Class
Assignment...

Question

HI5027S Corporations
Law
Assessment
2
Assessment
Value: 20%
Due: Week
10 in Class
Assignment Topic:
One of the main
ways in which the ‘veil of incorporation’ can be lifted is when directors
breach their duties.This essay question
is set around the duty to prevent insolvent trading.You will need to have read the chapter in
your prescribed text that deals with this duty and have then researched more
widely by looking at other textbooks, the relevant CCH online library, articles
from the internet and journal articles.
You must answer both parts of this topic.Please make sure you have REFERENCED in the
body of your work ACCURATELY,.Remember,
referencing shows you have researched and thought about what material will be
relevant to assist you in answering the questions.

Read the following scenario and answer BOTH parts (questions) at the
end.
OHS Solutions Pty.
Ltd. is a company formed by three friends (Des, Satish and Emma) who bring
different skills and abilities to the business.
Emma is an accounting graduate, Des has expertise in occupational health
and safety (OHS) and Satish has an IT degree.
They decided to start up a business which would provide a portal through
which the public and businesses could access (for free) information on all
aspects of OHS.OHS Solutions would
finance its business, and make profits, by charging businesses to advertise via
their website.
The directors of
OHS Solutions are:
Managing Director –
Des
Finance Director –
Emma (non executive)
Director – Satish
(executive – employed also to run the technological side of the business)
Director – Ying
(non executive) – a friend of Des’ and director of Support Pty. Ltd.(Support Pty. Ltd. has gone guarantor for a
$50,000 loan from the Business Bank Ltd. to OHS Solutions)

The Shareholders of
OHS Solutions (holding equal amounts of ordinary shares) are Des, Emma, Satish
and Support Pty. Ltd.
As at January 2007
OHS Solutions had been operating for six months.It had some initial IT problems which
prevented some of the advertisers’ material from being accessed.In order to try to help overcome these
technical problems Satish engaged Trouble Shooters Pty. Ltd.
At the February
Board meeting, Satish reported that two businesses who had paid to advertise on
the website were dissatisfied with what was happening and were threatening to
sue for breach of contract.Emma was
unable to table any financial information as the employee who had been doing
the accounts had been sick and when Emma looked at the records she found that
they seemed to be in a bit of a mess.
She did find a large account from Trouble Shooters that was over
due.Des reported that he was disturbed
by this news.He had been told by Satish
that the IT problems had been fixed since Trouble Shooters had been engaged, and
he had just signed a $10,000 advertising contract with Promotions Plus Pty.
Ltd. to advertise the website and signed up to go to a trade show to be held in
conjunction with a forthcoming OHS conference.
He said this was needed because a number of high profile advertisers
were threatening to discontinue their association with OHS Solutions unless the
portal became better known.
Ying just listens
in disbelief at the March Board meeting.
It seemed to her that OHS Solutions is being poorly managed and is failing
to make the most of a potentially profitable business opportunity.This could present an opportunity for Support
Pty. Ltd. to make an offer to buy OHS Solutions at a good price.On the other hand Support Pty. Ltd. is
exposed as a guarantor.
Assume she consults
you, an accountant, for your preliminary view about the predicament of OHS
Solutions and what she should do.
Assume also that the first thing that comes to your mind is whether Ying
herself may be vulnerable as a director of OHS Solutions for failing to prevent
OHS Solutions from trading when it is insolvent.

YOUR TASK
Part A- (approx
800-1,000 words)10 marks
Write a
brief explanation about why the directors’ duty to prevent insolvent trading
exists and the circumstances and consequences of the ‘veil of incorporation’
being lifted for insolvent trading.(Do
not just repeat the words of the relevant sections in the Corporations Act).

And

Part B(approx
1,500-1,700 words)25 marks
From what you know
of OHS Solutions’ predicament, DISCUSS whether any of the directors may be
about to breach or have already breached the duty to prevent insolvent
trading.(In order to do this you will
need to compare what is happening in OHS Solutions case with other precedent
cases and refer to the relevant sections in the Corporations Act.)What will
you advise Ying?

(Note:you do not have full information, so state
briefly in the essay what information you need and make reasonable assumptions
that will allow you to give your advice.
ONLY DISCUSS INSOLVENT TRADING – THAT IS THE QUESTION AND YOU DON’T HAVE
ENOUGH WORDS TO GO INTO OTHER AREAS)

PLEASE NOTE THE
FOLLOWING INSTRUCTIONS:
References must be
cited in Harvard referencing style (eg Smith XXXXXXXXXXThe assignment must include
a bibliography (list of references used in the assignment).The Internet may be used for authoritative
reference material provided the source, author, date of access, and site
address is clearly shown in footnote format.

In addition to
sources from the Internet, at least three hard-copy sources must also be
used.These can be either books or
articles or both.Materials from any
common law jurisdiction may be used.

Robert · Accepted Answer

Part A  
The aim of this explanation is to present a framework which makes the insolvent trading of directors to prevent the existence of circumstances outlined in the case where the veil of incorporation should be determined along with a determination of trading which is insolvent. The Director has the duty as understood from the case, to prevent the scenario of insolvent trading. In accordance to the Corporations Act 2001, a duty has been imposed on the directors to prevent the trading which is insolvent in nature. Additionally, according to the act within the draft regulatory guidance proposal, there are various provided duties. These duties discuss that there are various duties which the director have to prevent in accordance to the legal background. There are however, 4 principles which the directors should follow and these obligations prevent the trading in an insolvent way (Andreassen 2008). These 4 principles are: 
There need to be an investigation which the directors would carry out keeping in mind the framework of investigation which are financial reaching a concerned identification having viability that are financial. Additionally, the directors should have an advice from the professional stand point where the financial difficulties need to be addressed. Further, the perspective of the director should be considered as well as should be made to act in such a way which is appropriate on the received manner in accordance to the manner which is timely. 
The simple rationale here exists from the positive duty of the director to prevent the organization from the essence of certain kind of debt when the company in a way insolvent at any time which is incurred by incurring something which is particular in regard to being a debt. This debt is needed to be incurred from all standpoints. This duty provides the director that positivity that he can cause any person as well to formally as well as in a position where the director needs to be in accordance to the instructions which have to be presented and these instructions have to be according to the director of the company and the acts outlined by him. There is a defense mechanism of the director which provides him a claim in the framework of civil which need to test from the determination of references that are outlined by the case. There are however, a number of factors according to which the insolvency of the company has to take the regulatory issues into account. It is in the hands of the director to involve a general monitoring position of the finances which determine an indication of every indication in which the debts have to be paid (Bloom 2007). The reliance of the director needs to be on the information over solvency of any company and also needs to be provided by the person helping him to inquire the establishment of the director that is suitable for qualification, competency as well as reliability providing that information in which the company becomes solvent completely. The reasonable steps have to be undertaken by the satisfaction of an understanding which advices the completely received information advising on the basis of accuracy as well as completeness. If there are grounds which are reasonable suspecting that the organization needs to be such that it has to come out of all the difficulties and the insolvency has to incur the debts in which positive steps have to be undertaken where the positions of the finances have to be assessed in the realistic way relating to the difficulties in which the consideration of the companies where solvency is taking place, the debt which is incurred should be a new one. The advices considered by the director should be considered and all the qualifications in assumptions associated to the reasonableness of the advices have to be the basis. The director has to consider all these discrepancies in order to relate him towards the framework of the case advising that framework which is insolvent and needs to receive that which addresses that lack of liquidity in all these suspended aspects (Carter 2009). The continuity and the monitoring framework of all the position of the finances are those which prepare actions in a further suspect ion where companies have to settle down the actions which are further andare those that do not provide any complete insolvency character. From here,

HI5027S Corporations Law Assessment 2 Assessment Value: 20% Due: Week 10 in Class Assignment Topic: One of the main ways in which the ‘veil of incorporation’ can be lifted is when directors breach...

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